With investors seeking out new ways to get better returns, so-called smart beta exchange-traded funds are becoming more popular. The reason is a practical one, Dan Draper, Invesco PowerShares managing director, told CNBC on Monday.

"If you really look over the last 15 years, [there have been] unintended consequences," Draper said in an interview with "Power Lunch" from the Inside ETFs conference.

"If you look at the dot-com bubble, you had your tech exposure would have gone from 19 to 31 percent in a year. If you look at Japan bubble, you would have doubled your exposure in a global equity portfolio in Japan over three years. Basically when those markets crash, you really get hurt."

In other words, smart beta funds are not market-cap weighted and therefore they are not overweighted with names that may be overvalued.

For example, PowerShares offers an ETF that is comprised of high-dividend stocks and another that it calls "equal weight," which takes equal sector weightings and equal weightings of each stock.

Wealthfront, No. 20 on CNBC's Disruptor 50 list, is a financial firm that uses automation to create portfolios of low-cost exchange-traded funds. Nash said that about 60 percent of its clients are under 35 and 90 percent are under 50.

The secular trend toward passive investing is in part due to the attitude of millennials, he said. However, that doesn't mean humans aren't involved in the process.

'We just use our humans for what we think humans do well, which is the investment research," Nash said. "They put together the right portfolios. Software is used to make sure that your account is personally taken care of on a daily basis."